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Dividing Debt

When filing for divorce most individuals will consider among other things the division of property and child custody as their primary concerns. Due to the importance and magnitude of the first two topics, many forget to consider and prepare for the debt division portion that accompanies a divorce case. The last thing we may think about is dividing debt, however, it is crucial to be prepared with the right type of documents and information.

Dividing debt can be tricky. First one will need to consider the type of debt that has been accumulated throughout the years of marriage. The only debts that can be shared are those that were accumulated by both parties under as a married entity. In other words, the debts either party has accumulated before their marriage and after the divorce is filed, is debt that cannot be shared with the other party.

There are three common types of debts that married individuals may encounter throughout the time spent together. In many cases, married couples seek ownership of a home which motivates them to apply for a mortgage loan. Loans that have collateral such as a car or home, are known as ‘secured debts’. In another scenario, the same couple applies for a credit card to share gas, food, and other expenses. The debt accumulated through credit cards and other loans are acknowledged as ‘unsecured debts’. Unsecured debts have no collateral which means the bank has nothing to claim in the event that the loanee fails to repay their debts. Finally, a couple may also find it cheaper to claim and file taxes as a single entity. If at the end of the year they owe money to the IRS, it is known as “tax debt”.

Married couples requests loans with the attempt to create a family or establish long-term goals. Unfortunately, things don’t always work out and a couple may find that it is best to split their ways. The decision to separate, when a couple has shared debt, will require the help of a mediator, often a lawyer or accountant, that is capable of evaluating the situation and capable of helping the couple come to an agreement.

As many courts across the United States would suggest, it is more time efficient and cost-effective for the parties filing for divorce to come to an agreement over their debts and assets outside of the jurisdiction of a courtroom. Handling such complicated debts in a courtroom in the presence of a judge and lawyers will be costly on both ends which is why you are advised to seek mediation. 

If you need help filling your divorce case or if you are in the process of ‘dividing debt’, you are encouraged to reach out to a mediator. Often, mediators can help you determine what is a fair distribution from a third person point of view. In many cases, both parties do not have a clear understanding of their complex debt situations which may create complications when both parties attempt to take care of these situations on their own.

We believe that mediation is the best option to entering a courtroom with a private and personal matter. However, there are times when the other party cannot or is unwilling to cooperate with the divorce procedures. If either party refuses to participate in the divorce process, you will most likely need to file a court order to have your divorce granted. If your partner refuses to participate or acknowledge the divorce, our lawyers can help you present your case in a court of law. We believe that mediation is the best option before entering a courtroom, but in these cases, you will require a family law professional who will represent your case in a court of law. If your case requires the attention of a lawyer experienced with divorce law, you may contact San Diego Divorce Attorney at 858-529-5150.

Marital Debt vs Your Own Debt

Debt that is accumulated while you are married is considered marital debt and each party will have some liability for this type of debt. On the other hand, the debt you acquired before marriage (this includes credit card debt, car loans, mortgage loans, student loans), is considered ‘pre-marital debt and cannot be transferred or shared with the other party after a divorce. This means that after a divorce, any debt that is acquired before or after a marriage is considered separate debt. Marital debt can include both unsecured and secured types of debts. The more properties that debt is tied to, the more difficult it can be to determine the best option for moving forward. There are states that consider any debt and property to be ‘community’ while other states allow a distinction between assets and debts. To have a better understanding of the type of debt that may fall under your responsibility you should speak with a local legal expert.

Community property vs non-community states

If you live in a community property state the debt incurred while married will be split into a ‘50/50 fashion’. Of course, after you present your case and the judge has a better understanding of both parties financial status’, the ratio more often than not changes affecting the higher earning individual more.  Individuals residing in the following nine states are subject to community property state laws: California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

In community property states, most if not all property or debts that are accumulated during the marriage are debts and assets that legally belong to both individuals. Upon a divorce, you may be required to pay back debt even if you did not personally use the credit or loan. In non-community states, both parties will encounter different laws that tend to defend the rights of the higher earning party and the properties that they incurred with their resources.

Private Vs Shared 

Property and debt that fall under your name are those which are brought into a relationship before a marriage. Property that is inherited even while in marriage is separate property. In addition, if you have established a prenuptial or post-nuptial agreement, the debts and properties stated in the document will be divided accordingly.

In all states, prenuptial agreements are honored so long as they do not overstep any boundaries when it comes to child support or other child-related issues. Prenuptial agreements or postnuptial agreements are a good way of maintaining a clear understanding between you and your partner of the debts and properties that will be shared or separate. To establish a post or prenuptial agreement you will want to speak with an attorney to assure that the agreement will hold up in a court of law. There are times when a post or prenuptial agreements are deemed unlawful, and therefore, the provisions stated may not be honored. 

Debt Distribution Procedure

The debt distribution portion is one of the more tedious procedures that requires a clear assessment of your financial standing and amount of debt incurred while in marriage. If you are fortunate, you will have a responsible spouse who will take responsibility for the debt they rightfully and knowingly incurred separately from your affairs. In other cases, you may be required to pay some of the debt your partner inquired even if you had no idea of the credit he or she was using. In either case, you will want to be prepared when filing claims to distribute debt. Whether you are seeking mediation or a court trial, having the following information at hand will allow a relatively smooth process in the debt distribution procedure.

  1. A clear assessment of your financial standing : In order to begin to understand your obligations over the debt incurred during the marriage, you will need to have a clear understanding of your financial situation. You will need to understand how much money you make a year and how your earning capacity impacts your obligation to pay back certain debt and you will need to understand how much debt is solely yours.

    1. Prepare important documents: Gather any document that illustrates your earning capacity such as your W-2 or a paycheck. In a courtroom hearing, you will most likely have to disclose this information so that the judge has a clear understanding of your financial situation. The judge will not place an unfair burden on the party with the most debt or economic struggles. In addition, it will attempt to aid the party that is in charge of the children for the greater portion of the time.

    2. Prepare to disclose this information to your attorney: Your attorney is there to help you advance your case and represent your case in your best interest. Disclosing your information will allow the attorney to understand your situation in greater depth allowing him or her to guide your case honestly and efficiently.
  1. Organize the different types of debts you owe. In some states, if you did not sign for a credit card loan, you may not have responsibility for the debt. During a divorce the types of debts that are divided included secured debts, unsecured debts, and tax debts.

    1. Secured Debts: Debts that are tied with a ‘real’ assets such as a home, a car, or other estate that can be used as collateral. Secured debts allow the banks or lenders to repossess or claim certain portions of your estate when you are unable to pay back your debt. Secured debt can be much more complicated to divide since it is tied down with important assets. It is important to have your property and debt evaluated by a professional that can properly assess and divide your debts and properties.

    2. Unsecured Debts: Debts that are not attached to any asset or estate. Unsecured debt is debt that arises from credit cards, payday loans, or medical bills. Since they are not attached to real property the division procedure may be easier than when dividing secured debts.

    3. Tax Debts: If you and your wife/husband or partner have filed for a taxes as a single entity, the debt (if any) will fall under the responsibility of both parties after a divorce.

  2. Speak with a local state attorney or mediating professional: The divorce process does not have to be complicated. In many cases, couples have the capacity to separate their assets and debts especially when there is not much to divide amongst each party. However, whenever there are shared assets such as a home, car, and other estates, the division process is more complicated. Speaking with an attorney or mediator can help you achieve an agreement with the other party. A trained professional will help you assess your complex financial history and determine the fairest way of dividing assets and debts.

Once you have talked with an attorney and you have gathered your financial documents, you will be capable of moving on to the next step which is the division of secured and unsecured debt. You will be responsible for the debt that is assigned to you and written down in the divorce agreement.

Dividing Secured Debt

When dividing secured debt you will need to determine who will take over the property and how the debt will be divided. In some cases, you are able to have secured debt loans transferred to your partner (if he or she wishes to keep the property and finish off the payments), so that you are no longer responsible for the debt. In other cases, couples may choose to move forward by selling the property and sharing the profits (if any).

Dividing Unsecured Debt

In some cases, both parties are capable of deciding who will pay what credit card or loan. Most times it is clear which person used the credit services making it easier to place liability on the debt. In courtrooms, the judge will decide what party is capable of paying back the debt incurred while married. The judge will not place a burden on an individual if they are already facing economic hardships. However, unsecured debt can also result in bankruptcies.

When filing for divorce there are a number of factors that affect how much debt will be your responsibility. Couples understand that debts need to be divided and most are able to come to terms with their partner without having to enter a mediation or courtroom. However, if you need professional legal assistance, you may contact the San Diego Divorce Attorney at 858-529-5150. We are ready to assess your divorce case and provide guidance in every step of the divorce procedures.

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